Riverbed, Trulia Fall On Downgrades

By Teresa Rivas

In the world of analysts’ rating changes, Intel (INTC) was the big winner today, rising on an upgrade to Neutral from Piper Jaffray.

Elsewhere, both Riverbed (RVBD) and Trulia (TRLA) were falling on downgrades to Hold.

JMP Securities’ Erik Suppiger cut his rating on Riverbed to Market Perform from Outperform, on news that Eric Wolford, president of the company’s products group, is planning to retire in October, which he sees as complicating the integration of recent acquisitions:

The company has struggled to generate synergy across its product line after completing a large acquisition and we believe Mr. Wolford’s departure will prolong the integration challenges. While Mr. Wolford is taking a Director seat on the company’s Board, we don’t believe he will be in a position to materially contribute to the company’s day to day execution, which is critical for the successful integration of OPNET. The company has also had other management departures in its executive team this year and we believe the company is working through various transition issues. RVBD traded up less than 1% in the after-market after the announcement of Mr. Wolford’s retirement from the executive team. With Riverbed trading at 14x our CY14 EPS estimate, which is close to our assumed growth rate of 13% in CY14, we feel it is fairly valued. For F3Q13, we estimate Riverbed will report EPS of $0.23 on revenues of $267 million, which is in line with consensus. For FY13, we estimate the company will report EPS $0.94 on revenues of $1.06 billion which is approximately in line with consensus.

As for Trulia, RBC Capital Market’s Mark Mahaney and his team lowered their rating on the stock to Sector Perform from Outperform. The write that the risk-reward for the stock isn’t as favorable as Trulia approaches their $47 price target, although they continue to view the real estate space overall as an attractive place to be and note that the company has been executing well.

Highlights from the note:

Business Challenges: 1) Trulia Operates in a Very Competitive Environment – Although Online Real Estate remains a strong secular growth opportunity, TRLA faces a strong competitive set, including Zillow (Z) and Realtor.com (owned by Move Inc.). These sites both offer robust Desktop/Mobile Online Real Estate Marketplaces with high-quality listings. We continue to view Zillow as the leader in the space with TRLA as a fast-follower. 2) Upcoming Integration Challenges – While we think the Market Leader asset can enhance Trulia’s scope and provide some cross-selling opportunities, the size of the deal (TRLA will pay ~350MM and currently has a market cap of $1.5B) presents some considerable risks.

Valuation Concerns – TRLA deserves to trade at a premium multiple given its high growth potential and strong execution since the time of the IPO. But, at 45X our 2014 EBITDA estimates, TRLA shares have already reached that premium level. It’s true that our estimate ’12-’15 EBITDA CAGR is 102%, but this is skewed somewhat by TRLA’s exceptionally small EBITDA base (we’re projecting 2013 to be the first year of positive EBITDA).

Fellow online real estate firm Zillow was making headlines (and also losing ground at recent check) after the company said it will buy StreetEasy for $50 million.

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